. . . student loan defaults have overtaken those for all other types of debt.

America’s total student loan debt is now nearly $1.2 trillion. One reason the burden is difficult to pay off, Fed researchers wrote: “Student debt is not dischargeable in bankruptcy like other types of debt … Delinquent or defaulted student loans can stagnate on borrowers’ credit reports.”

The number of student borrowers almost doubled over ten years.

The surge is fueled by more people borrowing — and borrowing larger amounts. The number of borrowers rose 92 percent between 2004 and 2014, according to the Fed researchers. The average student loan balance grew 74 percent.

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Danielle Paquette, “Americans are having more trouble paying off their student debt than their houses”, Washington Post, February 19, 2015.

… Primarily because of the recent growth in enrollment in the program, projected long-term revenues from the federal direct student loan portfolio were reduced by almost $22 billion compared with the best guess from the previous year….

That’s a big quasi-bailout, increasing the deficit nearly 5 percent. The White House budget office was unaware of any larger re-estimates since the current scoring rules for credit programs went into effect in 1992. As a January Politico Magazine feature on the government’s unusual credit portfolio reported, the Federal Housing Administration has stuck more than $75 billion worth of similar re-estimates onto Uncle Sam’s tab over the last two decades, most of them after the recent housing bust led to a cascade of FHA-backed mortgage defaults. But it’s never had a one-year shortfall quite as drastic as this.

Borrowers are made out to be innocent victims of “circumstances beyond their control”.

Regardless of which accounting method is used, the federal government is expecting to write off billions of dollars in future student loan balances under the program in order to reward public service employment and protect borrowers from economic circumstances beyond their control.

Eventually both private lenders and the government will be on the hook. The government has already moved to ease some loan terms. It will need to find more, especially for those snookered into paying for degrees worthless in the job market. The private loans, meanwhile, will simply blow up. We may as well start figuring now how graduates, taxpayers, lenders, and schools will split the bill.

Taxpayers just took on $22 billion, and there’s probably more to come.

It’s borrowers with the smallest balances that are most likely to default on their student loans.

College dropouts are more likely to default.

… One likely explanation, offered by the New York Fed researchers, is that many Americans with small loan balances are dropouts. They may have attended school for a semester or two without getting a degree. They often don’t end up with the decent-paying job that a college education is supposed to bring, and thus lack the income to repay their debt.

Another possibility is that low-balance borrowers attained credentials such as certificates that don’t lead to the kind of jobs and salaries that a bachelor’s degree does.

A larger loan balance usually indicates a graduate degree, a credential that generally correlates with a higher salary.

By contrast, many borrowers with large loan balances are people who graduated from master’s programs and professional schools—doctors, lawyers—who typically end up with generous salaries. (We said typical, not always. There are plenty of struggling lawyers.)

High earners disproportionately take advantage of income-based repayment programs that shift part of their loan burden to taxpayers.

So while they have the biggest debts, they’re getting the actual returns on their investment and thus are in position to repay their loans. They also may be the most likely to enroll in income-based repayment programs, which many academics say disproportionately benefit high earners.

The “real problem” that needs urgent attention is K-12 education, but President Obama proposes “to spend money on preschool or community college instead of substantive reform of K-12″.

Do Kids Need ‘College’ Because High Schools Aren’t Doing Their Job?

Mandating “free” thirteenth and fourteenth grades via community college should make one wonder what is going wrong in tenth through twelfth grade that makes two more years of de facto public school now necessary. Only increasing opportunity can reduce poverty. More “free” preschool or thirteenth grade only serves as palliative care for those in poverty. These programs don’t spark real change, as demonstrated from studies from Obama’s own administration. It’s a tacit admission from Democrats that their goal is not to eliminate poverty but to paper over it with politically charged policy. In fact, what would animate the Democratic Party if poverty were significantly reduced? They much prefer the self-satisfaction of saying they care without ever having to produce results. If no one were poor, whom would they have to feel superior to?

That’s the problem Democrats won’t be addressing any time soon and it’s the one that deserves this nation’s attention. Institutionalizing children earlier and longer won’t lead to more creativity and innovation, which are the real stimulus of economic growth. Real-world experiences—whether it play when young or entry-level jobs when they’re teens—are being taken off the table while politicians mandate more isolation and testing within the confines of public school. Don’t fall for the bait and switch. It’s time to tackle the real challenge that we are already paying too much for universal education and getting diminishing returns.

Even though Head Start produces no long-term benefits, Obama pushes for more of the same. His recent idea of “free” community college only emphasises the failure of our existing K-12 system to produce competent graduates.

… More “free” preschool or thirteenth grade only serves as palliative care for those in poverty. These programs don’t spark real change, as demonstrated from studies from Obama’s own administration….

Otto offers only vague ideas for alternative solutions: more real world experiences in the form of less structured child care and entry-level jobs for teens. Those may be helpful, in theory at least. Actually implementing them successfully is a whole other challenge. Poor single parents are not easily trained to properly nurture their children and jobs are not instantly created by government dictum. But if Otto’s ideas are not the best solutions, then “free” preschool and college certainly also fail the test for the best use of taxpayer money.

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Amy Otto, “President Obama Pushes Pre-K And ‘Free’ College Because He’s Got Jack For K-12″, The Federalist, January 23, 2015.

Students who took out big loans for graduate school and those with higher incomes stand the most to gain financially under President Obama’s expansion of the federal government’s loan forgiveness program.

Lawyers, doctors and other highly trained professionals who utilized federal loans throughout their post-high school education could walk away with most or all of their graduate school debt forgiven by the federal government under the program, say experts.

Graduate students usually get their money’s worth.

… Almost regardless of undergraduate major, a graduate degree boosts earning power even further, according to the Georgetown Center on Education and the Workforce.

… It asked graduates how they were doing across five different metrics, including financially, physically and socially. Eleven percent of graduates of public universities and private universities said they were “thriving” across all five. Twelve percent of graduates of U.S. News & World Report’s top 100 schools were thriving, essentially the same as the rest.

But student loans can cripple well-being.

The biggest predictor of whether a graduate wasn’t thriving was whether he or she had student loans. Fourteen percent of those without any debt said they were thriving, compared to 2 percent of those with more than $40,000 of debt. You can’t draw iron-clad conclusions from that, but those figures should be worrisome all the same for anyone thinking about taking on student loans.

Takeaway lessons: Going into debt to attend your “dream” school may be detrimental to your well-being. Private school may not be worth the extra money.

ADDED:

These are the five elements of well-being that were measured in the Gallup survey:

Purpose Well-Being: Liking what you do each day and being motivated to achieve your goals

Social Well-Being: Having strong and supportive relationships and love in your life

One of the slow-rolling and under-reported government debacles is the rising amount of student-loan debt that is guaranteed by taxpayers and will never be repaid. Thanks to the federal takeover of the student-loan market in 2010, the Education Department now stands behind more than $1 trillion in outstanding debt. Less well known is how the same federal government that has promoted and subsidized this debt is also scheming to make sure it doesn’t have to be repaid.

Income-based repayment programs are one way for borrowers to shift responsibility over to taxpayers.

So-called income-based repayment programs reduce a borrower’s monthly payments and then forgive the remaining principal after a period of years. Graduates who choose the nonprofit and government jobs favored by the President can have their loans forgiven entirely after 10 years.

The Obama administration greatly expanded benefits under income-based repayment plans in recent years and has launched efforts to promote them. Enrollments are growing rapidly and now stand at an all-time high. Some 24% of Federal Direct Loan Program balances ($115 billion) that have come due are enrolled in the two most generous plans, Income-Based Repayment and Pay As You Earn. That is up from 14% a little more than a year ago. The number of borrowers using the plans has doubled over that time, to 2.2 million.

At the same time, default rates are trending upward. This at a time when the economy is supposedly improving.

Student loans are promoted for everyone, regardless of qualifications. And loans are being made easier “not to repay”.

This all makes sense, however, when you realize that the student-loan program has been designed to achieve two political goals: Loans should be available to any student, at any school, pursuing any credential; and student debt is bad and burdensome, so it should be easy for borrowers not to repay.

Based on these goals, the program is performing quite well for students and the institutions whose coffers swell under such loose lending standards. Loan issuance has grown rapidly in recent years while repayment rates have declined steadily. From the perspective of the taxpayers who must ultimately finance these liabilities, however, the federal student-loan program is performing badly and steadily getting worse.

Use and availability of income-based repayment (IBR) schemes, which set repayment expectations at a set percentage of the student borrower’s post-college income, will dramatically increase in 2015. This is because policymakers have narrowly defined the student debt problem as a problem of student borrowers struggling to keep up with payments (i.e., avoid default). Therefore, setting payments at a more affordable level would seem to resolve the problems student debt creates….

William Elliott III
Founding Director of the Assets and Education Initiative at the University of Kansas, School of Social Welfare and an expert on student debt

Students and parents often find the Free Application for Federal Student Aid (FAFSA) to be a little intimidating. The form asks more than 100 questions about family finances and demographic details. The FAFSA is slightly more complicated than the typical federal income tax return. Officially, the form should take less than an hour to complete, but most parents don’t have advanced degrees in economics. Some parents want help completing the FAFSA, because they worry that making a mistake on the FAFSA will affect their ability to pay for college, ruining their child’s life forever.

Temple University, a large, public college in urban Philadelphia ranked 121 on the US News list of National Universities, offers automatic merit scholarships based solely on grades and test scores.

The most generous award is the President’s Scholars, which offers full tuition plus $8,000 in stipends for approved “study abroad, research, internships or other summer academic activities”. Freshmen qualify with the following criteria:

High-school GPA ≥ 3.8
SAT CR + Math ≥ 1420
ACT Composite score ≥ 32

Four other scholarships are available, as outlined in the table below. About 40% of entering freshmen receive academic scholarships, and any student with a GPA of at least 3.0 and SAT score of 1150 will receive some level of merit aid. 2015 fall tuition and fees for a 12-hour semester at Temple University are $14,130 for Pennsylvania residents and $24,350 for out-of-state residents.

President Barack Obama on Thursday proposed offering free community college nationwide, in effect extending government-funded education from kindergarten through a two-year degree.

Federal costs are estimated to be about $6 billion per year, with states picking up some of the tab.

Federal funds for the plan would go only to community-college programs the White House deems effective as determined by whether most students graduate and find employment or transfer to four-year schools. Students also would be required to attend at least half time, maintain a 2.5 grade-point average and “make steady progress” to remain eligible.

Community college, in effect, would be universal the way high school is. This approach could make the program more popular, as Social Security and Medicare have strong political constituencies in part because all elderly Americans receive them.

Will “Free tuition” automatically improve community colleges’ often dismal rates of student success?

Federal data show that at two-year colleges, 31 percent of first-time, full-time students graduate within three years. The implicit assumption of free-tuition plans is that the main reason students don’t finish community college is the cost of tuition. Not, say, the fact that somewhere around 50-60 percent of community college students are not college-ready, or that many community colleges are not designed with student success in mind.

Color me skeptical that a federally-funded free option will solve all of these problems. To be clear: research shows that tuition prices and grant aid do influence enrollment rates, and we’re learning more about how they influence student success.

But the notion that making college free will mechanically improve student outcomes is naïve. Take community colleges in California, where students pay the lowest published tuition in the nation ($1,429 this year). Attendance is essentially free to many students who qualify for Pell Grants. In a 2012 analysis, I found that retention and completion rates across California’s community colleges were above the national average. But completion rates were even higher at two-year colleges in Wisconsin and North Dakota, where tuition is two to three times as high and Pell Grant recipients make up a larger percentage of enrollments than in California.

A free option would almost certainly boost enrollment rates. But these cross-state outcomes do suggest that pushing tuition to zero may not be a silver-bullet solution to lackluster student success.

… Even if students pass such remedial classes, research shows they’re less likely to graduate than their peers who start directly in college-level classes.

Instead of paying for remedial classes that won’t improve the odds of graduating from college, maybe it would be better to focus more effective efforts on finding ways to produce more high school graduates who are college and career ready.

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Douglas Belkin, Byron Tau, & Colleen McCain Nelson, “Obama Calls for Two Years of Free Community College for All Students”, Wall Street Journal, January 8, 2015.

Perry Bacon Jr., “Inside Obama’s Proposal to Make Community College Free and Universal”, NBC News, January 9, 2015.

Andrew P. Kelly, “Four reasons to be skeptical about Obama’s free community college proposal”, Forbes, January 9, 2015.